Israel Tax Authority wants to levy higher taxes on purchasing groups
Posted on 29. Jun, 2010 by Buy-It In Israel Staff in Israel Real Estate
The Israel Tax Authority is seeking to raise the purchase tax on property in Israel bought through buyers groups and make private individuals in the group’s deal pay Value-Added Tax.
Israel real estate purchasing groups are organized groups of mostly private individuals who join up to buy land rather than through a contractor in order to build one or two buildings mainly for residential purposes and most recently also for commercial use. The Israel Tax Authority is now advancing plans to levy the purchase tax for buyers groups on the apartment and not on the land as is currently the case. What this means is that an individual joining a buyers group will be defined as a buyer of an apartment and not just the land. As a result, purchasing group buyers will need to pay the same taxes as other Israel home buyers.
The trend of purchasing an apartment in Israel through a buying group has gained strong momentum over the past two years since it contains savings of up to 20% of the apartment value. The savings include mainly the developer or contractor’s profit and the tax benefits enjoyed by private individuals of buying groups, which do not apply to developers or contractors. For example, private individuals do not have to pay Value Added Tax, which is currently set at a rate of 16%. There are also some savings on purchase tax.
Under the new recommendations, the Israel Tax Authority wants to increase the purchase tax on the buying of a second apartment from the current 3.5% to 5% from the first shekel.
In addition, according to the Israel Tax Authority’s recommendations a buyers group will be defined as a group of ten buyers and more, who pay an organizer of the group. The income of an organizer will be taxed as if it is a business. Furthermore, the Israel Tax Authority sees the need to tighten supervision on buyers groups and their organizers, in particular to crack down on investors, who are using the purchasing group as a vehicle to make a quick profit. For example, the Israel Tax Authority is recommending the establishment of a monitoring mechanism of apartments for investment through buyers groups to ensure that a buyer does not buy a number of Israel real estate units for the purpose of turning them around and selling them for a quick and nice profit.
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